Small EMS provider faces the same strategic sourcing challenges as the big firms
By James Carbone -- Purchasing, 3/13/2008 2:00:00 AM
• Eastek
Location: Chicago • Size: $35 million revenue in 2007 • Business: Contract manufacturer offering injection molding, magnetics, metal stampings, printed circuit-board assembly, box build and engineering support
With $35 million in annual sales revenue, Eastek International is admittedly a small electronics manufacturing services (EMS) provider. But since the Chicago-based company has five manufacturing facilities in southern China and a diverse customer list with their own supply bases, Eastek's got a lot of sourcing challenges that big EMS firms might be familiar with.
Because Eastek is based in the U.S. and its manufacturing is in China, sourcing can be very challenging, says Daljit Sabharwal, vice president of global sourcing. "We are trying to buy as much as we can in China, but not everything is available," he says. "We have to purchase materials in the U.S. and ship them to China."
Eastek sources about $25 million in goods and services a year, including electronic components, keypads, and plastics and metal parts to support its five plants which offer injection molding, magnetics, metal stampings, printed circuit board assembly and box build for electronics OEMs, as well as engineering support.
About 75% of Eastek's electronics are purchased in Hong Kong and China. Because his purchasing volumes are relatively low, Sabharwal leverages the products and services of electronics distributors including Arrow, Avnet and Future Electronics.
Eastek handles most of the sourcing for the equipment it builds for its customers but has to use the suppliers on the OEMs' approved vendor lists. Working on a variety of customers' supplier rosters makes it more difficult to leverage volumes in its purchasing and reduce materials cost.
"We have to work with a lot of different suppliers, and right now we have too many suppliers for the same product," says Sabharwal. "We often will show our customers substitutions that might provide us with a volume benefit, when it makes sense."
And to make things even more challenging, Sabharwal says sometimes Eastek's customers will specify components that have a single source.
Eastek tries to reduce costs with other supplier-facing strategies. For example it has used some vendor managed inventory (VMI) programs such as bonded inventory with its key suppliers. "Our VMI programs reduce our liabilities," Sabharwal says. "We give them the forecast and adjust the bonds. That has helped reduce our leadtimes quite a bit."
Eastek also plans to have a distributor-run in-plant store at its facilities, which will further reduce total cost.
In addition to sourcing challenges, Eastek has faced the challenge of adapting its business model to reach a wider customer base—something many of the larger EMS firms have tried to do. While Eastek has been around since 1992, the company drastically changed its business model in 2003. Until then it had been primarily a plastics company building modem housings for the telecommunications industry.
"In 2003, nearly 70% of our revenue was from plastics and today 70% is turnkey assemblies and box builds," says Bob Wiegand, vice president of sales for Eastek. Today Eastek builds boards, subsystems and systems for OEMs in a variety of industries including industrial equipment, transportation, consumer electronics, medical and telecommunications.
And that expansion brought about a bigger customer list and a host of new service offerings. "Actually we are trying to rationalize our customer base," says Wiegand. "We want to focus on our more strategic customers and grow with them. We envision that the number of strategic customers will grow to 40," he says. It has about 20 now.
Many of Eastek's more strategic customers want to take advantage of Eastek's low-cost manufacturing in China. But they also want design help and to protect their intellectual property (IP). In 2006, Eastek began providing design services. Customers are assigned a lead design engineer based in Chicago and the design work is done in China.
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